Investments

[FanboyOf91]

Jeez . . . I'm so damned lost now

The Real Estate part or the index fund part?

[techboy]

Jeez . . . I'm so damned lost now

All right, let's make it simple.

1) Generally speaking, what is the amount you're looking at investing? Is it 4 figures? 5 figures? etc. Is it at least $3000?

2) What are you investing for? Retirement? A house? Emergency fund? When will you need the money?

3) Do you currently contribute to an IRA? If so, have you contributed the maximum $5000 for last and this year (it's not too late to make a contribution for 2008)?

4) Do you have a 401(k)? If so, does the 401(k) have a company match?

[Mark The Homer]

.... The response that most interested me was that I should take the money from my next deployment and invest it.

The problem is, I have no idea how or in what.

Investing in gold is a terrible idea. Gold, historically, exactly keeps up with inflation over the long term.

I don't understand how you can tell the OP that gold is terrible. When you consider that he obviously hasn't invested before, and you consider the current economic crisis, and you consider the level of uncertainty that all investors are feeling right now, and you consider he wants something that he doesn't have to manage in the short term, it hardly seems terrible. No, he's not going to get rich, but he's going to be putting his money into something that is stable which, from the language of the OP, is what he wants.

My suggestion was to consider gold now, while the markets are in turmoil. I thought that was implied, which is why I didn't expound on it. When things settle down and the dust clears, then the investor can make a better forecast of the future and consider other things.

"Terrible" seems like an awfully strong word.

[techboy]

"Terrible" seems like an awfully strong word.

And I chose it quite deliberately.

Once again, the fact is that gold, in the long term, is a ZERO real return investment. Zero. Add in costs, and it's negative. After inflation, you actually lose money.

It's also extremely volatile, making it unsuitable for a short-term investment. In the next year it could shoot through the roof, or it could fall through the floor.

If you want to hedge inflation, buy TIPS. If you believe the experts that argue that commodities have a place in the portfolio as "portfolio insurance", it's still better to go with a broader grouping of commodities.

Besides, investments should be for the long term, so who cares about how volatile the markets are now? In 10 years, these "drastic" market movements won't even be visible on returns charts.

[McD5]

And I chose it quite deliberately.

Once again, the fact is that gold, in the long term, is a ZERO real return investment. Zero. Add in costs, and it's negative. After inflation, you actually lose money.

It's also extremely volatile, making it unsuitable for a short-term investment. In the next year it could shoot through the roof, or it could fall through the floor.

If you want to hedge inflation, buy TIPS. If you believe the experts that argue that commodities have a place in the portfolio as "portfolio insurance", it's still better to go with a broader grouping of commodities.

Besides, investments should be for the long term, so who cares about how volatile the markets are now? In 10 years, these "drastic" market movements won't even be visible on returns charts.

Translation: He missed the gold run, and is now pissed. He also believes that the gold move was totally random, and that it will come back down.

Gold is good in these times....but wouldn't be buying it for inflationary reasons at the moment.

[techboy]

Translation: He missed the gold run, and is now pissed. He also believes that the gold move was totally random, and that it will come back down.

I hope you're better at market timing than you are at psychology.

[McD5]

I hope you're better at market timing than you are at psychology.

hehe:)

Actually....in the long run, gold isn't that great. The last bear market lasted 24 years on gold.

Having said that, a portfolio in gold over the last three years has been an incredible place to be.....one that index fund investors wish they had.

[Thiebear]

Okay so in the last year i've doubled my 401k to 700 a month. "i figure i have some catching up to do ... i'll check on it in 21 years. I figure it'll be around 11k then

AND if it drops to 5000, ... My 401k has none in MY company only Large cap, small cap overseas blah blah blah. I'll probably put my next 3% raise in March into an IRA.

I know crap about the Market: only that i want to buy (mixed stuff) when its low and hope i jumped on board at the right time????

(note:) I'll spend my 4k tax return on the Kitchen floor i replaced myself and pay off Lowes.

Then have a 5k "retention bonus" net: that i was going to put into a 529 but heard they suck in return.

then i read the Above... probably put that into the emergency fired fund.

[Skinz4Life12]

buy an M3?

[Mark The Homer]

I will confess I don't know what TIPS is.

Let's pretend it's January 13, 1930. Let's pretend I have enough cash to buy a luxury car, but I want to invest it instead, and I don't want to have to manage it because I'm leaving the country for a while. There has recently been an unprecedented drop in the stock market, banks are failing, dow companies are on the brink of failure, and uncertainty is everywhere. I am nervous and I don't have confidence in the stock market. Furthermore, I am being told to do 12 different things from 12 different people. My primary goal is to preserve my investment.

Let's pretend I buy gold and hold it for three years, or five years, or ten years (you pick) as I wait for things to calm down.

Was is a terrible idea?

[McD5]

I will confess I don't know what TIPS is.

Let's pretend it's January 13, 1930. Let's pretend I have enough cash to buy a luxury car, but I want to invest it instead, and I don't want to have to manage it because I'm leaving the country for a while. There has recently been an unprecedented drop in the stock market, banks are failing, dow companies are on the brink of failure, and uncertainty is everywhere. I am nervous and I don't have confidence in the stock market. Furthermore, I am being told to do 12 different things from 12 different people. My primary goal is to preserve my investment.

Let's pretend I buy gold and hold it for three years, or five years, or ten years (you pick) as I wait for things to calm down.

Was is a terrible idea?

If you put every penny of it in there, yes, it is risky.

Diversification is good.....overdiversification is bad. But you don't want everything just in gold.

Many people are expecting gold to go higher later this year, due to financial uncertainty, and due to the fed printing so many dollars in the bailout.

I bought some gold yesterday......but am only looking for a quick 5% over the next week.

[techboy]

I will confess I don't know what TIPS is.

Treasury Inflation Protection Securities. They're U.S. Treasuries issued by the government, and they pay a certain percentage, plus the rate of inflation.

As to the rest of your scenario, yes, it was a terrible idea.

Buying a negative real return investment to hold for the long term is a terrible idea. Who likes losing money?

Buying for the short term requires successful market timing, which research shows is effectively impossible, and so that is a terrible idea. Unless you like to gamble.

Now, I don't know off the top of my head waht happened to gold in that time frame. I suspect that was one of it's bullish periods, and so in hindsight it was a good idea. The problem with that approach is that anything can be back-tested to look like a good idea, given the right time frames. I could also pick out a time period where investors in gold lost their shirts. It's meaningless. What matters is expected returns going forward, and as I said, they're negative real.

And besides, past performance is not indicative of future results.

Now, if you're like McD5 and you think you can predict the future, then maybe you know what gold will do, and so it's a good idea.

[techboy]

Many people are expecting gold to go higher later this year, due to financial uncertainty, and due to the fed printing so many dollars in the bailout.

These same people have been predicting inflation (and even hyperinflation) for the last 2 or 3 years. Right now, we're in a period of deflation. I hope your crystal ball is working.

[PeterMP]

hehe:)

Actually....in the long run, gold isn't that great. The last bear market lasted 24 years on gold.

Having said that, a portfolio in gold over the last three years has been an incredible place to be.....one that index fund investors wish they had.

Here's a question. You clearly do this for a job- as away to make short term money to cover current and near future expenses (mortgage/rent, food, utilities, etc.), but you also presumably have a "savings"- some portion of your money that you aren't using on a regular basis to move in and out of the market in an effort to make more short term money.

What do you do with that money?

[Mark The Homer]

Well, obviously I'm drawing parallels to the very early 1930s and today. I'm not just picking a random time frame.

You're right though, we can't predict the future.

[techboy]

Well, obviously I'm drawing parallels to the very early 1930s and today. I'm not just picking a random time frame.

Well, that's a dangerous comparison. Many of the policies the Fed are pursuing today are in direct response to what happened after 1929. Ben Bernanke is a student of the Great Depression. As such, many of the underlying factors this time are going to be quite different going forward, even if we start with the presumption that the scenarios are even analogous to begin with. Things could end up better, or they could end up worse, but it's a dubious notion to assume that various instruments will respond in the same manner as they did last time.

And, of course, anything you know, the market knows too, so any real advantage will be arbitraged away. For every buyer, there must be a seller.

You're right though, we can't predict the future.

Exactly.

[McD5]

Here's a question. You clearly do this for a job- as away to make short term money to cover current and near future expenses (mortgage/rent, food, utilities, etc.), but you also presumably have a "savings"- some portion of your money that you aren't using on a regular basis to move in and out of the market in an effort to make more short term money.

What do you do with that money?

Just a FDIC insured money market right now.

[McD5]

These same people have been predicting inflation (and even hyperinflation) for the last 2 or 3 years. Right now, we're in a period of deflation. I hope your crystal ball is working.

Yes....which is why I wouldn't invest in tips, for any reason.

Having said that.....those people that have been predicting hyperinflation for the last 2-3 years were 100% correct.

Gold is up over 130% in that timeframe.

Oil, gold both flying today in an otherwise weak mkt this morning.

[Mark The Homer]

Well, that's a dangerous comparison. Many of the policies the Fed are pursuing today are in direct response to what happened after 1929. Ben Bernanke is a student of the Great Depression. As such, many of the underlying factors this time are going to be quite different going forward, even if we start with the presumption that the scenarios are even analogous to begin with. Things could end up better, or they could end up worse, but it's a dubious notion to assume that various instruments will respond in the same manner as they did last time.

And, of course, anything you know, the market knows too, so any real advantage will be arbitraged away. For every buyer, there must be a seller.

Agreed. And for the record, I'm holding in stocks.

[McD5]

Out of oil.

+ 3.5% today on that, bought yesterday.

[PeterMP]

Now, if you're like McD5 and you think you can predict the future, then maybe you know what gold will do, and so it's a good idea.

Realistically techboy, the problem isn't predicting the future. There are a good number of complex systems for which we can accurately predict the future, and there is a lot of published work on doing so for stock markets (e.g. http://www.softcomputing.net/abo-nn.pdf)

The problem is to make money you have to predict the market BETTER than others (better in this case can take two forms: 1) at some gross level further out than everybody else and 2) even at short periods of time more accurately than anybody else).

Which raises the question if somebody had away to predict the market better than others (which would be required to make money), why would that person share that information and therefore decrease their ability to predict it better than others and continue to use the method to make money?

Interestingly though, the market is in fact influenced by the people that think they can predict the future better than others using publicly avaliabile information/methods. Let's change your hypothetical of a person flipping heads 100 times in a row to somebody that can predict the what the coin will land on and they do it some large number of times in a row (due to pure chance) that to some it in fact becomes impressive and worth taking that persons word for and start to "gamble" on that persons prediction.

Now, our coin isn't truly random. It is influenced by things like that and how people gamble affect the coin. With lot's of people gambling on his prediction, that affects the outcome of the coin in a manner positive to his prediction.

I had this discussion once w/ somebody heavily involved in the market and was told that individual investors didn't have the money to influence the market that way. I think that's wrong and doesn't take into account the influence of modern communication. Biological systems have something called signal cascades that amplify signals so that a small initial signal (e.g. a single molecule) can have a large affect.

I'm pretty sure the market timers- specifically the chartists are having a similar affect on the market. If you are a "good" chartist (and being a "good" chartist is really just an investment in time so that you are finding the trends that others are using to invest before they do (simply as a function of time- you put in more time (or doing so more effeciently) so more frequently you will find the trend first and buy the stock before others), for now (until other factors start to run the market and the chartist are wrong a lot (which I actually don't think will happen. What will happen is there will be a rise of other "popular" "chartist" w/ new methods to chart based on the changes in other factors.)), you can make money.

In short, the charist that are out in front are successful because they are driving the price of the stocks. They are in fact essentially picking random stocks, except, the fact they've picked them (for the ones that see the trend early (again as a result of an investment of time or effeciency)) positively influences the price (as the "late" chartist and then others that are following that increase in price (the amplification of the signal) come in).

I wouldn't suggest that the average person do it. I will bet McD5 will attest that it is a lot of work, but if you have the time and the money, I think it could work for an extended period of time (not indefinietly at some time some other signal will over whelm the chartists influence, but then there will be another "chartists" (quotes because the person will be a market timer, but may not really be a chartist (but maybe and will just based their decisions on other information/charts/trends)).

[PeterMP]

Just a FDIC insured money market right now.

You do realize that long term techboy is right. The market has continually out performed any other form of investment for long term holding of money.

Long term as compared to putting it in a broad based mutual fund, you almost certainly will lose money.

[Heisenberg]

Before anyone takes McD5's advice on investments I would suggest they take a look at his "gambling" thread and see how well his picks have turned out over there.

Consistently wrong - I have a feeling this is no different.

[artmonkforHOF]

wow, talk about a lot of advice.

I am by no means an investment guru, but when I had some cash and didn't want to spend it right away, I put it in a savings account with no fees. I did not make a great return (3%) but it did give me access to my money at anytime, which turned out to be a blessing when I found the house I wanted and the previous owner wanted a quick closing.

I liked the fact I could get to my money at any time, not pay any monthly fees or a charge to withdraw and close the account.

[McD5]

You do realize that long term techboy is right. The market has continually out performed any other form of investment for long term holding of money.

Long term as compared to putting it in a broad based mutual fund, you almost certainly will lose money.

Yes....stocks have outperformed everything, including real estate historically.

If you are convinced that the entire US financial system is not currently one big ponzi scheme, then they may continue to do so going forward.

If you are ok with losing 50% of your life savings in stocks on one single year, then they have been perfect.

If you feel otherwise, then to not implement some system of market timing is foolish.

I love stocks......my favorite thing on earth. I wouldn't accept index fund mutual funds though.....they simply don't make any sense.

Think about this.....oil goes straight up, and airlines come straight down. Now why would you want any airline stocks in your portfolio at that time? You wouldn't.

Or like a year ago.....you knew the housing mkt was crashing, yet index funds would have had you in homebuilders, mortgage companies, and the shady banks that financed them, and then totally imploded.

Why would anyone on earth want to hold housing stocks during those times? They wouldn't. To do so is not only defeatist....it is foolish.

I move money into the best performing sectors, and out of the worst performing sectors. Exactly the opposite of index mutual funds.